An operational plan, on the other hand, by its nature is supposed to draw boundaries and eliminate uncertainty by detailing the specific action path to outcomes before the project starts, and by applying a budgetary limit for the achievement of those outcomes.

In this first post, I’m going to talk about the difference between Risk and Uncertainty, since uncertainty is part of the reason why we need a strategy.

Risk and Uncertainty are not the same, though we tend to think that they are synonyms.

Risk is statistically calculable-which is to say, we can assign a probability to the risk because we have some source of data that allows us to estimate how likely the event is. The proper response to this risk probability is to mitigate risk, to take steps that will allow us to react quickly to reduce the impact of the event that we are worried about.

We can’t assign a probability to real uncertainty though it is common for organizations to define uncertainty as risk, so it will be seen as manageable and requiring no particular change of current behavior. If we confuse uncertainty with risk, we will end up imagining events (since we are uncertain as to what will actually happen), assigning them a fictitious probability, and developing fictitious mitigation strategies.

The perfect example of this was the Fukushima nuclear plant meltdown. In the planning for building the power plant, the corporation’s design system had discussions of how to quantify the likelihood of an earthquake that would threaten the integrity of the plant’s operation. These discussions were only incidentally about the actual risk. They were mostly about the initial costs of building the plant to mitigate the results of an earthquake since that structural mitigation would dramatically affect the cost of building the plant and the potential profit from its operation.

You can easily imagine ongoing arguments between engineers and financial planners about the right investment in earthquake mitigation. What they settled on was a model that made the construction of the plant able to withstand an earthquake that was 10 times stronger than any earthquake in Japan’s history (that is, experiential history, written history, narrative history, since there was no way to access historical evidence of earthquakes back beyond these sources of data).

Of course, the actual earthquake was several orders of magnitude greater than any earthquake in that historical record and resulted in the complete loss of plant integrity and an ongoing destruction of the area around the plant and in earth’s oceans that will continue at some level for longer than anyone currently alive will be around to see it.

Obviously, the planners for this nuclear plant had no idea what the actual risk of this event was. They concocted a model of the “risk” that would allow them to build the plant, satisfy state regulators and provide predictable financial projections to the organization and its investors. The model was entirely wrong but was financially, socially, and politically useful.

While nuclear meltdown is seldom a possibility in our change efforts, we often follow exactly the same line of reasoning that the engineers and financial planners did for the Fukushima plant.

The answer to uncertainty is not an operational approach to a mitigating a fictitious risk, but the development of a real strategy.

Next Post, Part 2: Fictitious approaches to uncertainty as social glue.